Exam 14: Monetary Policy

In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Berna Chairman of the Federal Reserve stated that "policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant." If all the banks enacted the policy simultaneously, which of the following expenditure components increase in the United States? i. exports ii. consumption iii. investment

If the Fed wants to lower the federal funds rate, it can

How does a rise in the federal funds rate target affect aggregate demand, real GDP, and the price level in the short run?

The higher the federal funds rate, the the opportunity cost of holding reserves, which The incentive to economize on reserves.

-In the above figure, suppose the economy is at point D. If the Fed eases to fight the recession, the economy will move to

The proposal to keep the quantity of money growing at a slow constant rate is an example of

If the Fed lowers the federal funds rate, then

In an open market purchase, the Fed government securities, which bank reserves.

Explain how the Fed's response to inflation works its through the economy to ultimately affecting real GDP and the price level.

The Fed buys government securities and gives the bank a check for the amount. After the check has cleared,

Explain the differences between using the monetary base versus federal funds rate as the monetary policy instrument. Which does the Fed use as its instrument?

Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should

When the Fed buys one million dollars in government securities from a commercial bank,

If the Fed fears inflation it will undertake an open market of securities, the federal funds rate will and the long- term real interest rate will .

The Federal Reserve monetary policy goals of maximum employment means

A decrease in the federal funds rate leads to

A country that operates a fixed exchange rate cannot pursue an independent monetary policy.

A decrease in the quantity of reserves supplied to commercial banks could be the result of

The short- run effect of lowering the federal funds rate

If the Federal Reserve lowers the Federal funds rate,